Cheat sheet: exam reference for the Chartered Institute for Securities & Investment CISI Introduction to Investment (CISI Intro): products, markets, risk, regulation, and calculations.
This independent Cheat Sheet supports candidates preparing for the Chartered Institute for Securities & Investment CISI Introduction to Investment exam, code CISI Intro. Use it to review high-yield concepts, product distinctions, calculations, and exam-style decision points.
Use the tables for a quick pre-exam check. Expand a topic’s notes for explanations, examples, and additional distinctions.
Scope and study context
Classify the main parts of the investment industry.
Distinguish asset classes, instruments, risks, and returns.
Understand how markets, firms, investors, intermediaries, and regulators interact.
Apply basic investment calculations and decision rules.
Avoid common exam traps around bonds, equities, funds, derivatives, risk, taxation, and market operations.
This page is independent review support and is not affiliated with the Chartered Institute for Securities & Investment.
Use this Cheat Sheet first, then move into independent companion practice:
Start with topic drills on your weakest areas: bonds, derivatives, funds, regulation, operations or calculations.
Review detailed explanations after every missed question, not just the correct option.
Keep a short error log with the reason for each mistake: concept gap, formula error, misread wording or unsuitable product choice.
Re-test mixed topics so you practise switching between asset classes and decision rules.
Finish with timed mock exams once your topic accuracy is stable.
Your next practical step is to use original practice questions in a question bank, review the detailed explanations carefully, and return to this Cheat Sheet whenever a topic drill exposes a weak area.
Exam-Day Mental Model
Area
What to recognise quickly
Common exam angle
Economic environment
Inflation, interest rates, GDP, exchange rates, fiscal and monetary policy
“What happens to bonds/equities/currency if rates rise?”
Financial markets
Primary vs secondary markets, order-driven vs quote-driven, clearing and settlement
“Who issues, trades, clears, or holds the asset?”
Equities
Ownership, dividends, voting, capital growth, corporate actions
Use TERP to estimate the theoretical ex-rights price after the rights issue. Compare the old cum-rights price, subscription price, and TERP to identify the value of rights.
Corporate actions
Corporate actions can change the number, value or rights of securities held.
Corporate action
Effect to remember
Dividend
Cash or stock distribution to shareholders
Rights issue
Existing shareholders offered new shares, often at a set price
Bonus / scrip issue
Additional shares issued, often capitalising reserves
Stock split
More shares at lower nominal price per share; economic value may be unchanged initially
Consolidation / reverse split
Fewer shares at higher nominal price per share
Takeover / merger
Ownership or control changes
Redemption
Bond or preference share may be repaid according to terms
Trap: A stock split does not by itself make the company more valuable. It changes the number of shares and price per share mechanics.
Bond and Fixed-Income Reference
Bond Basics
Term
Meaning
Exam reminder
Nominal / face value / par
Amount on which coupon is calculated and usually repaid at maturity
Often 100 or 1,000 in examples
Coupon
Stated annual interest rate on nominal value
Coupon rate is not the same as yield
Maturity / redemption date
Date principal is repaid
Longer maturity usually means higher interest-rate sensitivity
Clean price
Quoted price excluding accrued interest
Common market quote
Dirty price
Price including accrued interest
Actual invoice amount often uses dirty price
Accrued interest
Interest earned since last coupon date
Paid by buyer to seller on settlement
Redemption yield / yield to maturity
Annualised return if held to redemption, assuming payments as expected
Incorporates coupon, price, and redemption gain/loss
Confusing trade date with settlement or beneficial ownership
Core industry structure
The exam expects a practical understanding of how the investment industry fits together.
Participant
Main function
Candidate reminder
Issuers
Raise capital by issuing shares, bonds or other securities
Issuers receive funds mainly in the primary market
Investors
Provide capital and seek return
Investor objectives and constraints drive product suitability
Exchanges / trading venues
Provide organised markets for buying and selling
They facilitate trading; they do not usually guarantee investment performance
Brokers / dealers
Arrange or execute trades; may act as agent or principal
Agent acts for client; principal trades on own account
Investment managers
Manage portfolios or funds
Must align strategy with mandate and client objective
Custodians
Safekeep assets and administer holdings
Custody is different from investment advice
Registrars / transfer agents
Maintain ownership records and process changes
Important for corporate actions and shareholder records
Regulators
Set and enforce rules to protect markets and consumers
Regulation supports integrity; it does not remove investment risk
Notes and examples
Primary versus secondary markets
Market
Purpose
Example
Primary market
New securities are issued to raise capital
Company issues new shares or bonds
Secondary market
Existing securities are traded between investors
Investor sells shares on an exchange
Trap: If a shareholder sells existing shares to another investor, the company usually does not receive new capital. The company receives capital when it issues new securities.
Economic environment review
Investment questions often test whether you can connect economic changes to asset prices and investor behaviour.
Factor
Usually affects
Review point
Interest rates
Bond prices, borrowing costs, equity valuations, currency values
Rising rates generally pressure fixed-rate bond prices
Inflation
Real returns, interest-rate expectations, purchasing power
A positive nominal return can still be negative in real terms
If an investment earns 5% and inflation is 3%, the approximate real return is 2%. The exact calculation may differ slightly, but the exam logic is that inflation reduces purchasing power.
Main asset classes
Cash and money market instruments
Cash and money market instruments are generally short term and liquid. They are often used for capital preservation, liquidity management, or as a temporary holding.
Instrument / feature
Key idea
Bank deposits
Money placed with a bank; exposes investor to bank creditworthiness and interest-rate terms
Bank-issued negotiable deposit instruments in some markets
Liquidity
Ease and speed of converting to cash without significant loss
Inflation risk
Cash may lose purchasing power if return is below inflation
Notes and examples
Trap: “Low risk” is not the same as “no risk.” Cash-like assets can still involve inflation risk, credit risk, reinvestment risk, and currency risk.
Equities
Equities represent ownership in a company. Returns may come from dividends and capital growth, but neither is guaranteed.
Equity concept
Quick meaning
Ordinary shares
Residual ownership; voting rights often apply; dividends are variable
Preference shares
Typically have preferential dividend or capital rights, but may have limited voting rights
Dividend
Distribution of company profits to shareholders, if declared
Capital gain
Profit from selling at a higher price than purchase cost
Rights issue
Existing shareholders are offered new shares, often to raise capital
Bonus / scrip issue
Additional shares issued, often without new cash raised
Market capitalisation
Share price multiplied by number of shares in issue
Earnings per share
Profit measure attributable to each share
Price/earnings ratio
Price divided by earnings per share; often used for valuation comparison
Useful plain formulas:
Measure
Plain formula
Interpretation
Dividend yield
Dividend per share / share price
Income return relative to current price
Earnings per share
Earnings attributable to ordinary shareholders / number of ordinary shares
Profit per share
P/E ratio
Share price / earnings per share
How much investors pay for each unit of earnings
Market capitalisation
Share price × shares in issue
Total market value of equity
Equity traps:
Dividends are not interest payments and are not guaranteed.
Ordinary shareholders are usually behind creditors if a company is wound up.
A high dividend yield can signal income value, but it can also indicate market concern about sustainability.
A rights issue changes share numbers and may affect price comparisons.
Voting control and economic ownership are related but not always identical.
Bonds and fixed income
A bond is a debt instrument. The issuer borrows from investors and promises interest and repayment according to the bond’s terms, subject to credit risk.
Bond feature
Meaning
Nominal / par value
Amount on which coupon is usually calculated and often repaid at maturity
Coupon
Stated interest payment, often fixed as a percentage of nominal value
Maturity date
Date principal is due to be repaid
Clean price / dirty price
Quoted price may exclude accrued interest; settlement price may include it
Yield
Return measure based on price, coupon, time and redemption value
Credit rating
Assessment of issuer credit quality, not a guarantee
Secured bond
Backed by specific assets or security
Unsecured bond
General claim against issuer without specific collateral
Bond price and yield relationship
For fixed-rate bonds, the core rule is:
\[
\text{Bond prices and yields move in opposite directions.}
\]
If market yields rise, existing fixed-coupon bonds become less attractive, so their prices tend to fall. If market yields fall, existing fixed-coupon bonds become more attractive, so their prices tend to rise.
Situation
Likely price impact on existing fixed-rate bond
Market interest rates rise
Price falls
Market interest rates fall
Price rises
Issuer credit quality improves
Price may rise
Issuer credit quality deteriorates
Price may fall
Bond approaches maturity
Price tends to move toward redemption value, assuming no default
Bond traps:
Coupon rate is not the same as yield.
A bond trading above par can still be appropriate if its coupon is attractive, but yield must be assessed.
Government bonds may have low credit risk, but they can still have interest-rate and inflation risk.
Longer maturity fixed-rate bonds usually have greater interest-rate sensitivity.
Higher yield often means higher perceived risk.
Collective investments
Collective investments pool investor money and invest according to a stated objective or mandate.
Feature
Why it matters
Diversification
Spreads exposure across multiple holdings
Professional management
Manager selects investments according to mandate
Units / shares in fund
Investor owns an interest in the collective vehicle
Net asset value
Value of fund assets less liabilities, usually per unit/share
Charges
Reduce investor returns
Open-ended structure
Units may be created or cancelled as investors enter or exit
Closed-ended structure
Fixed capital structure; shares trade in market and may trade at premium/discount
Trap: A collective investment reduces stock-specific concentration risk, but it does not remove market risk, currency risk, manager risk, liquidity risk, or charging impact.
Derivatives
Derivatives derive value from an underlying asset, rate, index, currency or commodity. They can be used for hedging, speculation, arbitrage, or efficient portfolio management.
Derivative
Basic idea
Key risk
Forward
Private agreement to buy/sell in future at agreed price
Premium can be lost; seller may have significant risk
Call option
Right to buy underlying
Buyer benefits if underlying rises sufficiently
Put option
Right to sell underlying
Buyer benefits if underlying falls sufficiently
Swap
Exchange of cash flows
Counterparty and valuation risk
Option decision rule
Position
Right or obligation?
Market view if used speculatively
Buy call
Right to buy
Expect price to rise
Sell call
Obligation to sell if exercised
Expect price to stay flat/fall; risk if price rises
Buy put
Right to sell
Expect price to fall or want protection
Sell put
Obligation to buy if exercised
Expect price to stay flat/rise; risk if price falls
Derivative traps:
Hedging reduces a specific risk but may also reduce upside.
Derivatives can create exposure larger than the initial cash outlay.
Options give rights to buyers and obligations to sellers.
Futures require margin; margin is not the same as the full economic exposure.
A derivative’s risk depends on position, underlying, leverage and purpose.
Risk and return review
Investment suitability depends on the trade-off between risk and return. A product is not “good” or “bad” in isolation; it must match the objective, horizon, constraints and risk tolerance.
Risk type
Meaning
Example
Market risk
Prices move due to market conditions
Equity market decline
Interest-rate risk
Values change when rates move
Fixed-rate bond price falls after rate rise
Credit risk
Issuer or counterparty fails to pay
Corporate bond default
Liquidity risk
Asset cannot be sold quickly at fair price
Thinly traded security
Currency risk
Exchange-rate movement affects return
Overseas fund loses value after currency move
Inflation risk
Return fails to preserve purchasing power
Cash return below inflation
Concentration risk
Too much exposure to one asset, issuer, sector or country
Non-income growth assets if regular cash flow is required
Capital growth
Equities, growth funds, longer horizon assets
Excessive cash if inflation erodes real value
Liquidity
Readily tradable assets and cash reserves
Illiquid alternatives or long lock-up products
Inflation protection
Real assets, equities, inflation-linked exposure where suitable
Fixed cash return below inflation
Speculation
Higher-risk positions, possibly derivatives
Unsuitable for low risk tolerance or short essential goals
Diversification logic
Diversification is powerful because not all investments move together. However, it works best when exposures are genuinely different.
flowchart TD
A[Portfolio risk question] --> B{Too much exposure to one issuer, sector, asset class or currency?}
B -- Yes --> C[Concentration risk is high]
C --> D[Consider diversification if suitable]
B -- No --> E{Are holdings still exposed to broad market risk?}
E -- Yes --> F[Diversification helps but cannot remove systematic risk]
E -- No --> G[Review hidden exposures and liquidity]
Trap: Owning many funds does not guarantee diversification if the funds hold similar assets.
Investment process and suitability
A recurring decision point is whether the investment matches the client or investor profile.
Factor
Why it matters
Objective
Growth, income, preservation, speculation or liability matching
Time horizon
Longer horizons may tolerate more volatility; short horizons need liquidity and stability
Risk tolerance
Psychological and financial ability to accept loss
Investment restrictions may shape product selection
Notes and examples
Suitability shortcut
Ask four questions before choosing the answer:
What is the investor trying to achieve?
When is the money needed?
How much loss or volatility can the investor tolerate?
What risks are introduced by the product?
If the question includes a cautious investor with a short horizon, be careful about answers involving high volatility, illiquidity or leverage.
Regulation, ethics and conduct
The exam may test broad regulatory purpose and professional conduct rather than detailed legal memorisation.
Theme
Practical meaning
Investor protection
Firms should treat customers fairly and provide appropriate information
Market integrity
Markets should operate honestly, efficiently and transparently
Disclosure
Investors need relevant information to make informed decisions
Suitability / appropriateness
Products and services should match client needs and understanding where required
Conflicts of interest
Firms and individuals must identify, manage and disclose conflicts appropriately
Insider dealing
Misusing non-public price-sensitive information undermines fairness
Market abuse
Manipulation, misleading behaviour and improper disclosure damage market integrity
Financial crime prevention
Controls help reduce money laundering, terrorist financing, fraud and sanctions risk
Record keeping
Supports accountability, audit trail and client protection
Complaints handling
Ensures concerns are addressed through proper processes
Notes and examples
Conduct traps:
A profitable transaction can still be improper if it involves misleading conduct, misuse of information or unsuitable advice.
Disclosure alone may not cure every conflict or suitability issue.
“Everyone in the market does it” is not an ethical defence.
Confidential information is not the same as public research.
Regulatory duties apply to process and behaviour, not only outcomes.
Market operations
Operations questions often use similar vocabulary. Know the sequence and the function of each party.
Term
Quick meaning
Order
Instruction to buy or sell
Execution
Trade is completed in the market
Trade date
Date the transaction is agreed
Clearing
Process of determining obligations after trade execution
Settlement
Transfer of securities and cash
Custody
Safekeeping and administration of assets
Nominee
Legal holder on behalf of beneficial owner in some arrangements
Corporate action
Event affecting securities, such as dividend, rights issue, split or takeover
Reconciliation
Checking records agree across systems and parties
Notes and examples
Trading and settlement flow
flowchart LR
A[Investor decision] --> B[Order placed]
B --> C[Execution]
C --> D[Trade confirmation]
D --> E[Clearing]
E --> F[Settlement]
F --> G[Custody and records updated]
G --> H[Ongoing income and corporate actions]
Operations traps:
Trade date is when the deal is agreed; settlement is when cash and securities are exchanged.
Custodians safeguard and administer assets; they are not automatically investment managers.
Legal title and beneficial ownership can be different concepts.
A failed settlement is an operational problem even if the investment decision was sound.
Tax and net return
Tax treatment depends on product, investor circumstances and jurisdiction. For exam-style review, focus on the principle: investors care about net return, not just gross return.
Tax-related concept
Review point
Income tax
May apply to interest, dividends or other income depending on rules
Capital gains tax
May apply to gains when assets are sold
Withholding tax
May be deducted at source on some income
Tax-advantaged accounts / wrappers
Can change timing or amount of tax where available
Trap: If two products have the same gross return, the better investor outcome may depend on charges, tax treatment, liquidity and risk.
Basic calculations to refresh
Calculation
Plain formula
Watch out for
Percentage gain/loss
Change in value / original value × 100
Use original cost as denominator
Total return
Income + capital gain/loss
Include both income and price movement
Dividend yield
Dividend per share / current share price × 100
Use current price if asked for current yield
Current bond yield
Annual coupon / current bond price × 100
Not the same as yield to maturity
P/E ratio
Share price / earnings per share
Earnings must correspond to same share basis
Market capitalisation
Share price × number of shares
Use total shares in issue
Approximate real return
Nominal return minus inflation
Approximation, not exact compounding
FX return
Investment return plus/minus currency movement
Currency can reverse local-market gains
Notes and examples
Total return example logic
If an investor buys a share for 100, receives dividends of 4, and later sells for 110, the total monetary return is 14: 10 capital gain plus 4 income.
\[
\text{Total return percentage} = \frac{\text{income} + \text{capital gain or loss}}{\text{initial investment}} \times 100
\]
In this example, total return percentage is 14%.
Product comparison shortcuts
Equities versus bonds
Feature
Equities
Bonds
Legal nature
Ownership
Debt
Return source
Dividends and capital growth
Interest and repayment, plus price movement
Income certainty
Dividends usually discretionary
Coupon contractual, subject to default risk
Priority on winding up
Usually after creditors
Usually before shareholders
Upside potential
Potentially unlimited
Usually limited by coupon and redemption terms
Main risks
Market, business, dividend, liquidity
Credit, interest-rate, inflation, liquidity
Notes and examples
Direct investment versus funds
Feature
Direct securities
Collective funds
Control
Investor chooses individual securities
Manager follows fund mandate
Diversification
Requires sufficient capital and selection
Built into many fund structures
Costs
Dealing, custody, research costs
Fund charges plus possible dealing costs
Transparency
Holdings known if investor selects them
Depends on reporting and fund disclosure
Risk
Concentrated if few holdings
Diversified but still market exposed
Active versus passive management
Approach
Key idea
Main exam point
Active
Manager tries to outperform benchmark or objective
Higher skill reliance and often higher cost
Passive
Tracks an index or benchmark
Lower tracking objective; may still have tracking error
Index fund / ETF style exposure
Broad market replication or sampling
Not risk-free; follows market down as well as up
Common candidate mistakes
Misreading the investor objective
Many wrong answers are technically valid products but unsuitable for the facts given. Always anchor on the stated objective.
Short-term cash need: avoid illiquid or volatile answers.
Cautious investor: avoid speculative derivatives or concentrated shares.
Income need: look for reliable income characteristics, but still assess risk.
Growth objective and long horizon: excessive cash may not meet real return needs.
Notes and examples
Confusing similar terms
Confused terms
Difference
Coupon vs yield
Coupon is stated interest; yield reflects price and return
Primary vs secondary market
New issue raising capital vs trading existing securities
Broker vs custodian
Trade arrangement/execution vs safekeeping/administration
Nominal return vs real return
Before inflation vs after inflation
Diversification vs hedging
Spreading exposures vs offsetting a specific risk
Option buyer vs option seller
Buyer has right; seller has obligation
Execution vs settlement
Trade agreed vs assets/cash exchanged
Gross return vs net return
Before vs after costs and tax
Overlooking risk hidden in wording
Watch for clues such as:
“Guaranteed” — who guarantees it, and what risks remain?
“High income” — is capital at risk?
“Short term” — is the product liquid and stable enough?
“International” — is currency risk involved?
“Complex” — does the investor understand the product?
“Low cost” — does it still match the objective?
“Diversified” — diversified across what?
“Fixed income” — fixed coupon does not mean fixed price.
Fast decision framework for exam questions
Use this process when a question asks for the best product, risk, explanation or next step.
flowchart TD
A[Read the question stem] --> B[Identify investor objective]
B --> C[Identify time horizon and liquidity need]
C --> D[Identify risk tolerance and capacity for loss]
D --> E[Identify product features]
E --> F{Do product risks match investor profile?}
F -- No --> G[Eliminate answer]
F -- Yes --> H{Does answer address the exact wording?}
H -- No --> I[Eliminate distractor]
H -- Yes --> J[Select best answer]